Hess 2002 Annual Report Download - page 22

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At December 31, the Corporation is contingently liable under letters
of credit and under guarantees of the debt of other entities directly
related to its business, as follows:
Millions of dollars Total
Letters of credit $89
Guarantees 269*
$358
*Includes $221 million HOVENSA guarantee discussed above.
The Corporation conducts exploration and production activities
in many foreign countries, including the United Kingdom, Norway,
Denmark, Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia,
Colombia and Equatorial Guinea. Therefore, the Corporation is sub-
ject to the risks associated with foreign operations. These exposures
include political risk (including tax law changes) and currency risk.
The effects of these changes are accounted for when they occur and
generally have not been material to the Corporation’s liquidity or
financial position.
HOVENSA L.L.C., owned 50% by the Corporation and 50% by
Petroleos de Venezuela, S.A. (PDVSA), owns and operates a refinery
in the Virgin Islands. Although there have been political disruptions in
Venezuela which have reduced the availability of Venezuelan crude
oil used in refining operations, the Corporation does not anticipate
any material adverse effect on its financial position. The Corporation
also has a note receivable of $395 million at December 31, 2002
from a subsidiary of PDVSA. The Corporation has collected the prin-
cipal and interest payment due in February 2003 on the PDVSA note
and anticipates collection of the remaining balance.
Capital Expenditures
The following table summarizes the Corporation’s capital expendi-
tures in 2002, 2001 and 2000:
Millions of dollars 2002 2001 2000
Exploration and production
Exploration $ 239 $ 171 $167
Production and development 1,095 1,250 536
Acquisitions 70 3,640 80
1,404 5,061 783
Refining and marketing
Operations 83 110 109
Acquisitions 47 50 46
130 160 155
Total $1,534 $5,221 $938
The amounts shown for acquisitions in 2002 principally represent
final installment payments on prior year acquisitions. Capital expen-
ditures in 2001 include $2,720 million for the Triton acquisition,
excluding the assumption of debt. In addition, the Corporation pur-
chased crude oil and natural gas reserves in the Gulf of Mexico and
onshore Louisiana for $920 million. Capital expenditures above do
not include an investment of $86 million in 2001 for a 50% interest
in a retail marketing and gasoline station joint venture in the
southeastern United States.
During 2000, the Corporation acquired from the Algerian National
Oil Company a 49% interest in three producing Algerian oil fields.
At December 31, 2002, the Corporation is committed to additional
expenditures for the redevelopment of these fields of approximately
$340 million for new wells, workovers of existing wells and water
injection and gas compression facilities. A significant portion of
the future expenditures will be funded by the cash flows from
these fields.
During 2000, the Corporation acquired the remaining outstanding
stock of the Meadville Corporation for $168 million in cash, deferred
payments and preferred stock.
Capital expenditures in 2003, are currently expected to be approxi-
mately $1,475 million. It is anticipated that these expenditures will
be financed by internally generated funds.
Market Risk Disclosure
In the normal course of its business, the Corporation is exposed
to commodity risks related to changes in the price of crude oil,
natural gas, refined products and electricity, as well as to changes
in interest rates and foreign currency values. In the disclosures
which follow, these operations are referred to as non-trading activi-
ties. The Corporation also has trading operations, principally through
a 50% voting interest in a trading partnership. These activities are
also exposed to commodity risks principally related to the prices of
crude oil, natural gas and refined products. The following describes
how these risks are controlled and managed.
Controls: The Corporation maintains a control environment under the
direction of its chief risk officer and through its corporate risk policy,
which the Corporation’s senior management has approved. Controls
include volumetric, term and value-at-risk limits. In addition, the chief
risk officer must approve the use of new instruments or commodities.
Risk limits are monitored daily and exceptions are reported to
business units and to senior management. The Corporation’s risk
management department also performs independent verifications
of sources of fair values and validations of valuation models. The Cor-
poration’s treasury department administers foreign exchange rate
and interest rate hedging programs. These controls apply to all of
the Corporation’s non-trading and trading activities, including the
consolidated trading partnership.